By Mary Gooderham, on behalf of MaRS Discovery District

Health investors from the United States are discovering vast prospects in Toronto as a hot-spot for biotech innovation and a place to invest in cutting-edge life sciences startups.

To Jerel Davis, managing director of Versant Ventures, the global venture capital firm behind recent landmark deals in the city, “Toronto is pretty remarkable,” as a “completely under-tapped” market with strengths in fields ranging from regenerative medicine and oncology to heart disease, children’s health, radio medicine and imaging.

“The opportunity is huge,” he says, noting that U.S. capital and large pharmaceutical companies are attracted by Toronto’s capacities “across the board” in science and healthcare delivery. “There’s a very strong cluster of hospitals and research institutes in a very concentrated area. Many of them are top in North America, if not the world.”

The ease of access to those capacities is equally exciting, he says, with lower competition in the emerging ecosystem allowing VCs “willing to do the hard work and roll up their sleeves” to tap into fundamental science, working with the best academics in their fields.

One indication of the growing interest in Canada’s healthcare scene is the number of investors drawn to the annual Redefining Early Stage Investments (RESI) on MaRS conference. The largest health investor event in Canada, it is set to take place on April 4 (followed by the MaRS HealthKick Challenge on April 5). Davis attended last year’s event and says it allows VCs to quickly scout and assess top Canadian health companies. “It brings together in one room all the key players driving innovation in the health sector—VCs, angels, startups, academics and corporates—and facilitates finding the most disruptive ideas.”

Recent data on venture capital investments in the sector also point to increased momentum. According to CB Insights, VCs invested over $596 million in Canadian life-sciences companies in 2016, the most on record in a single year and almost 100 per cent higher than all of 2014.

Multinationals joining the Canadian health scene include Bayer, Celgene, Johnson & Johnson and Novartis, Davis says: “The list goes on and on and on.” Versant was involved in one of the biggest deals to take place in 2016—the second-largest initial investment in a startup in the history of the biotechnology industry—joining Bayer to invest $225 million U.S. to create BlueRock Therapeutics, a new company with significant operations at MaRS that will commercialize regenerative medicines from stem cell research.

Davis says that MaRS “serves as an important beacon,” from its critical development infrastructure to introducing foreign investors to the Toronto scene. In fact, since the Versant-Bayer deal last December, two other big announcements involving Toronto-based health startups in the MaRS network have been made: Highland Therapeutics raised $200 million to shake up the multi-billion dollar ADHD drug market; and Meta, a startup that provides an AI-powered search engine for researchers and doctors, was the first purchase made by the Chan Zuckerberg Initiative for an undisclosed amount.

Mary Haak-Frendscho, a venture partner at Versant and CEO of Blueline Bioscience, which is also based at MaRS and acts as the Canadian discovery engine for Versant, says that “MaRS is the centre of the hub and a key component of the ecosystem…You have everything right there, you have the entrepreneurs, you have the science, you have the clinical research for translation.

“The venture community is uniquely poised to fill the Canadian gap; everything is ready for them to step in,” Haak-Frendscho says, pointing out that pharmaceutical companies are also increasingly involved. The recent increase in the size of investments in the Toronto market reflects the quality of science and innovation in fields such as regenerative medicine and neurosciences.

“I’m sensing a turning point here and it’s pretty exciting,” she says. “There are cool things going on in Canada, in Toronto. When you have solid deal flow that is at a globally competitive level, people pay attention.”

Toronto is a test-bed for new business models that bring together VCs and big pharma to pool investments that speed up development. Davis says these include a “build-to-buy” approach, where partners help originate companies with an option to acquire them, while “other creative options continue to emerge,” including approaches where pharmaceutical companies like Celgene move in earlier to get access to technology and “bold collaborations” like the BlueRock deal.

“We want to accelerate innovation,” he says, adding that Toronto is an “obvious hub” in which to do it.

To learn more about the RESI on MaRS conference and to register, click here.

By Christine A. Wu, Senior Research Analyst, LSN

Big pharmaceutical companies have been a major player in the life science investment space for decades, yet historically they have been known to “just license, and say goodbye.” Today, these large corporations have taken new partnership models in the form of smaller funds set aside, innovation centers, and the like. Strategies and approach to these strategies have been changing in the last 5-7 years. With 40-60% of successful assets having come from external opportunities, it is with great note that big pharma is very closely following and adapting along the trends within the biotech ecosystem.

On January 10th, LSN gathered five highly experienced big pharma representatives for the Redefining Early Stage Investments panel in San Francisco around JPM. Moderated by Barbara Sosnowski, Vice President, External R&D Innovation, WRD of Pfizer and panelists representing Johnson & Johnson, Gilead, and Amgen shared insights around these trends in a variety of topics well-recommended for entrepreneurs and players in the space to take careful note.

Transformative Science is Worth Looking At, Though It’s An Upstream Battle

While all big pharmaceutical companies have their strategic angles – oncology, cardiovascular/metabolic, neuroscience, inflammation, to name a few – panelists added that, to be truthful, if the science is compelling enough, they will look at it.

“It’s all about influencing change,” Jeremy Grunstein, Executive Director of BD at Amgen, began. “The reality is, if you have something that makes a major difference for an unmet disease, that’s something that ought to be interesting to everybody.”

Sosnowski added that her team will definitely assess these disruptive technologies, but “it’s like a salmon swimming upstream” to put it through the governance process, due to its strategic misalignment. “But if the science is so compelling that it could be a game-changer, I think it’s worth the energy to swim upstream and get it through the senior leaders.”

Carolyne Zimmermann, Senior Director in Transactions at Johnson & Johnson described that a process “swimming upstream” would require heavy lifting and will require contacts within the pharma to champion the technology. Champions or not, Zimmermann added the importance of a contact who can articulate the pharma’s activity level: “we are going to the review board, here is our committee process, the people involved, etc.”

It Takes Time for Market Assessment

Especially for technology outside of their core strategies, Sosnowski outlined the market assessment and target product profile to take at least six months overall – three months for qualitative assessment, and three months quantitative assessment. Sosnowski understands the time frustration from the biotech perspective, but she explained that assessment “must come de novo,” especially as a lot changes over time (market, competition). “If we communicate how long that’s going to take and you and we understand that, then we are all in line,” Sosnowski added.

There is an Emphasis in External Opportunities

If there is any doubt in the matter, the panelists assured the huge emphasis in scouting external opportunities. For Amgen, Grunstein stated 50% of their commercialized products came from licensing and M&A. For J&J, Zimmermann stated that 40% of assets going into Phase II or III were externally innovated.

“I hear 40%, 50%, even 60%,” Zimmermann exclaimed, “It’s that we recognized that external innovation is crucial in our ecosystem.” Furthermore, Zimmermann added that “smaller companies can move cheaper, faster, and better than larger organizations.”

Partnering Models

In the past, partnership models for big pharma had a habit to just in-license. “Thank you very much, we will take over the development,” Zimmermann mimicked. The panelists, however, noted that within the last 5 to 7 years, there has been a real change to how these big pharmaceutical companies are striving to “be more biotech-like. “

Sosnowski outlined Pfizer’s creative funding model that keeps the firm from “just licensing.” Part of the strategy includes a seed fund, which acts as a convertible debt to pre-Series A companies to support the companies to be validated and off the ground. “It’s a great way to get in early and help guide the company moving forward… [and] think more creatively and out-of-the-box to how we can get earlier where there is higher risk.”

Zimmermann added the reasoning behind this outlook: “What I see emerging is the recognition that the entrepreneurs are deeply embedded in this particular science and are world-class leaders in that science.” She further elaborated that working with the entrepreneur by providing advice and resources may even be a better way to collaborate than a traditional license deal.

Monica Viziano, Senior Director, Alliance Management at Gilead Sciences explained that the in-licensing model is not scalable, “Licensing and complete control is a limitation in what we can even do. There is a recognition that we have to move on with a big change in mentality, particularly in R&D.”

Final Advice

1. Send your data – “We all know there are unknowns, but there are also established preclinical models in therapeutic indications,” said Zimmermann. Furthermore, if you have a novel asset, “show that your drug is working in the way you think it is with some mechanism of action data,” added Grunstien. Sosnowski outlined receptor engagement, how much coverage you will need, and specificity of target as major points to address.
2. Focus your material – “Be able to put it in a framework and story. If [the technology] is asset A, then don’t spend time talking about BCD,” described Viziano.
3. Have a conversation rather than email – “You can get a lot more from a conversation than an e-mail,” said Zimmermann. “Pick up the phone or find them in the next conference.” Sosnowski added that coming from her biotech background, she works hard to address feedback as thorough as possible.